Business Models Converge During Recessions
Is your technology provider a hardware vendor or a software vendor? Does your System Integrator now provide solutions in the cloud? These questions will continue as models converge. Hardware, software, and system integration vendors must reinvent new models of revenue. The economic recession has forced business model shifts at the major technology companies. The goal – own the largest share of both the business and IT technology budget. As these sellers attack new profit pools, buyers can expect continued convergence of business models because:
- Hardware companies seek higher margins. Most hardware vendors face single digit margins in their core business. To bolster margins, many vendors acquired system integration firms. For example, HP purchased EDS and Dell acquired Perot Systems. The next logical step requires the hardware vendors to get into software. Software margins hover from 10% to 50% depending on the market. Expect a hardware vendor such as Cisco, Dell, or HP to acquire a SaaS based company to move into the software business.
- Service providers build differentiated intellectual property (IP) using the Cloud. Service providers should go on the SaaS/Cloud offensive if they want to deliver rapid innovation to customers and break the cycle of dependence on packaged apps vendors. Service providers can take market share through SaaS by investing in white spaces in the solution road map with verticals and other pivot points that have not been well served. In addition, expect forms of SaaS BPO to emerge as clients seek best of breed SaaS and hybrid deployments.
- Software companies use Cloud to transform into information brokers. SaaS and Cloud deployments provide companies with hidden value and software companies with new revenues streams. Data will become more valuable than the software in the Cloud. Three areas of growth will include benchmarking, trending, and prediction.
- Companies by-pass software vendors for competitive advantage. Roper Industries acquisition of iTrade Networks on July 26th, proves a key point. Smart and innovative companies will put custom development in the cloud to meet last-mile solution needs that packaged apps vendors or system integrators fail to deliver. Companies may also acquire software vendors if they can’t build the solution.
Budget Authority Shifting From IT To Business
A recent survey of 23 companies shows that while the IT budget appear to have shrunk, the overall technology spend has increased. Key findings:
- IT budgets trending down. CIO’s focused on cost savings and efficiency. Among the 23 CIO’s, few IT budgets have increased and most have decreased between 3 and 8 percent. IT departments must do more with less.
- Business technology spending up. Growing SaaS and cloud adoption improve the outlook by business units to procure their own solutions. Among the 23 organizations surveyed, most line of businesses grew technology spend by 5 to 7%. Business leaders now call the shot on more and more technology decisions
- IT to BT spending ratios nearing 50-50. Survey showed that the average percentage of tech spend for IT was 53.7%. The average percentage of tech spend for business reached 47.3%. Expect the business technology budgets to surpass IT in 2012.
The Tech Ecosystem Model Provides Multi-dimensional Insights
The Software Insider Tech Ecosystem Model examines technology solution categories on 4 dimensions (see Figure 1):
- Tools for creation. This category describes technologies that can be reused to create new solutions.
- Tools for distribution. This category describes channels and distribution models to deliver client value.
- Value added solutions. This category describes high margin, high value solutions for clients. A plethora of vendors by industry, geography, market size, and role populate this category
- Commoditized infrastructure. This category describes technologies that should be optimized. A handful of vendors typically dominate this category.
Figure 1. The Software Insider Tech Ecosystem Model
